LAND BANK OF THE PHILIPPINES vs. ATLANTA INDUSTRIES INC.

GR No. 193796 July 2, 2014

DOCTRINE: Pacta sunt servanda is a fundamental maxim of international law that

requires the parties to keep their agreement in good faith

FACTS:

Land Bank entered into a Loan Agreement with International Bank for Reconstruction
and Development conditioned upon the participation of at least 2 LGU's by way of a
Subsidiary Loan Agreement (SLA) with Land Bank. The Land Bank entered into an SLA
with the City Government of Iligan. The City Government of Iligan, through its BAC,
conducted a public bidding using the IBRD Procurement Guidelines. Atlanta participated
in the bidding. The BAC informed Atlanta that the bidding was declared a failure. Atlanta
alleged that BAC failed to conform with the Bidding Documents in accordance with RA
9184 and its IRR. Atlanta filed a Petition for Prohibition and Mandamus with an urgent
prayer for the issuance of a TRO and writ of preliminary injunction to enjoin the re-
bidding of the project. Manila RTC declared the subject bidding null and void on the
ground that it was done contrary to the rules and procedure prescribed in RA 9184 and
its IRR. The Manila RTC also added that the SLA cannot validly provide for the use of
bidding procedures different from those provided under RA 9184 because the said SLA is
not in the nature of an international agreement similar to the Loan Agreement with the
IBRD.

ISSUE:

Whether or not the SLA is an executive agreement similar to Loan Agreement.

HELD:

Yes. The terms and conditions of Loan Agreement were incorporated and made part of
the SLA. This means that the SLA should be treated as a conjunct of, or having a joint and
simultaneous occurrence with Loan Agreement. Loan Agreement is in the nature of an
executive agreement. In Bayan Muna v. Romulo, the Court defined an international
agreement as one concluded between states in written form and governed by
international law. Examining its features, Loan Agreement between the IBRD and the
Land Bank is an integral component of the Guarantee Agreement executed by the
Government of the Philippines as a subject of international law possessed of a treaty-
making capacity, and the IBRD, which, as an international lending institution organized
by world governments to provide loans conditioned upon the guarantee of repayment
by the borrowing sovereign state, is likewise regarded a subject of international law and
possessed of the capacity to enter into executive agreements with sovereign. Owing to
this classification, the Government of the Philippines is therefore obligated to observe its
terms and conditions under the rule of pacta sunt servanda, a fundamental maxim of
international law that requires the parties to keep their agreement in good faith. It bears
pointing out that the pacta sunt servanda rule has become part of the law of the land
through the incorporation clause found under Section 2, Article II of the 1987 Philippine
Constitution.